Nordic Market Research Articles

Greening of Nordic Electricity Industry: Policy Convergence and Diversity

With a comparative focus on policy similarity and diversity, this article1 gives an overview of the main elements of electricity-related environmental policy in the Nordic countries, following the launching of a common electricity market in the 1990s. The article points out that the electricity related environmental policy positions of the Nordic countries showed a noticeable lack of coordination in the 1990s. Nordic divergence is observed both in terms of general policy orientations and at the instrument and incentive levels, in spite of the pioneering development of a common integrated electricity market and ambitious environmental policy goals. The article then highlights how the recent Swedish “green” certificate market model has created a new momentum for market-based “greening” with a potential for stronger convergence in Nordic renewable energy policy. In spite of signs of convergence, the article shows how the development of Nordic electricity-related environmental policy still contains considerable ambiguity: Unequal resource endowments, subject to simple resource-based interest formation, should indicate that there is little room for convergence in Nordic renewable energy policy. Shifting the environmental policy focus from existing technologies and resources to potential innovations, however provides a more open arena where the Nordic countries may see themselves served by the dynamic scope of a broader Nordic market based on a common policy approach, such as a green certificate market. In explaining why the Nordic arena may be an interesting locus for common renewable energy policy, the article points out that small countries may need an “intermediary” arena to aggregate size and scope in order to generate a European momentum in regulatory competition with larger European states. Similarly, Nordic companies may consider the opportunity to gain first mover advantages by partnering with government as local experimentation may be seen as useful pilot experience. Together with the precedence of a common Nordic electricity market and the development of common market institutions, the aspiration to be in a stronger position to shape European policy provides arguments for collective Nordic solutions even under increased Europeanization of both market and policy making.

Risk Management in Congested Electricity Networks

In this paper we describe available instruments for hedging against transmission congestion risks. These include forward contracts and options. We illustrate risk management strategies for trades between two locations when transmission congestion is present. Risk management in three different markets is exemplified by the general forward market, the bilateral market, and the Nordic market. Cash flow analysis describes the conditions under which hedging is profitable and demonstrates that players can protect themselves against future price differences. Taking into account that a riskless hedge may be non-optimal if the objective is to minimize variance, the optimal hedge ratio for forward contracts is calculated.

Heat in a cold climate: Solar heating systems developed for the Nordic market

Solar heating systems can, if the energy costs from the systems are low enough, play an important role in any country's energy portfolio. Chris Bales and Simon Furbo highlight solar thermal cost reduction measures planned for Nordic countries to increase up take of the technology in the region.

Internationalisation strategies of food‐testing firms in the changing Nordic market

The growing interest in food safety has led to food‐testing services becoming an issue of increasing importance. The demand for outsourced food‐testing services is growing. One of the results of these developments has been the internationalisation of such firms. This paper analyses the internationalisation of food‐testing services in the light of developments in the Nordic food‐testing market. The focus is on the external elements. These include development of the market to allow food‐testing firms to overcome problems and exploit opportunities arising from the fundamental changes in the nature of the market. The adopted internationalisation strategies of the Nordic food‐testing companies are studied. The key driver for internationalisation of firms is growth. Successful firms also need to maintain high levels of quality, speed of delivery, and competitive pricing.

Emissions accounting for use and supply of electricity in the Nordic market

In the deregulated Nordic electricity market, countries have varying kinds of power generation. In Norway, hydropower generation dominates, while the Swedish electricity production largely consists of equal shares of hydro and nuclear power production. There is a larger share of fossil fuel power generation in Finland and, especially, in Denmark. Cross-border trade between the countries is considerable. Increased use of electricity anywhere in the region may thus entail augmented emissions of greenhouse gases. The amount of increased emissions due to additional electricity usage will depend on the type of generation supplying the additional electricity. Similarly, a decrease in electricity usage may involve reduced greenhouse gas emissions. In this paper, we discuss some different ways to account for changes in greenhouse gas emissions because of a changed use or supply of electricity. A comprehensive accounting scheme should provide an accurate link between various types of energy measures and their related emissions in order to facilitate cost-effective carbon dioxide mitigation procedures.

Pricing of Contracts for Difference in the Nordic market

The purpose of this paper is to give an introduction to, and a pricing analysis of a new forward locational price differential product, Contracts for Difference (CfD), introduced the 17th of November 2000 at Nord Pool—the Nordic electricity exchange. To our knowledge there is no literature available of how the Nordic CfDs are priced. The CfD is a forward market product with reference to the difference between the future seasonal Area Price and System Price. By using available historical trading prices and spot prices for four seasonal contracts and one yearly contract, we analyze the relationships between the contract prices and the value of the underlying asset. For the first four seasonal contracts it appears that CfDs traded at Nord Pool are mostly over-priced relative to the underlying asset. Pricing theory for forward contracts explains this by the presence of a majority of risk-averse consumers who are willing to pay a risk premium for receiving the future price differential. We utilize statistical analysis with regard to the contract prices and the underlying asset, and find some interesting relationships. The analysis is preliminary due to the fact that the CfD market is relatively new.

Utilizing MATPOWER in Optimal Power Flow

This thesis analyzes transmission pricing, transmission congestion risks and their associated hedging instruments as well as mechanisms for stimulating investments in transmission expansion. An example of risk management in the case of a hydropower producer is included.After liberalization and restructuring of electricity markets, risk management has become important. In particular the thesis analyzes risks due to transmission congestion both in the short- and long-term (investments) for market players such as generators, loads, traders, independent system operators and merchant investors. The work is focused on the northeastern United States electricity markets and the Nordic electricity markets.The first part of the thesis reviews the literature related to the eight research papers in the thesis. This describes the risks that are relevant for an electricity market player and how these can be managed. Next, the basic ingredients of a competitive electricity market are described including the design of the system operator. The transmission pricing method is decisive for hedging against transmission congestion risks and there is an overview of transmission pricing models considering their similarities and differences. Depending on the transmission pricing method used, locational or area (zonal) pricing, the electricity market players can use financial transmission rights or Contracts for Differences, respectively. In the long-term it is important to create mechanisms for investments in transmission expansion and the thesis describes one possible approach and its potential problems.The second part comprises eight research papers. It presents empirical analyses of existing markets for transmission congestion derivatives, theoretical analyses of transmission congestion derivatives, modeling of merchant long-term financial transmission rights, theoretical analysis of the risks of the independent system operator in providing financial transmission rights, an analysis of inefficiencies associated with ignoring losses when utilizing area (zonal) pricing, and an application of an integrated risk management model on the power system of Norway’s second largest hydropower producer.The most important research findings include the following issues. First, Contracts for Differences in the Nordic market appear to be over-priced. Second, a merchant long-term financial transmission rights model is possible to realize in mathematical and economic terms. Third, by including the proceeds from a financial transmission right auction the independent system operator can issue a higher volume of rights because there is a relationship between the congestion rent, the proceeds from the auction and the payments to the financial transmission rights holders. Fourth, ignoring losses in the Norwegian area pricing, can lead to inefficiencies. Next, an integrated risk management model is applicable on large-scale power systems. Then, an overview is presented of different contractual arrangements that can be used to hedge transmission congestion risks. Finally, empirical data from existing financial transmission rights markets demonstrate how these markets work.

Liberalisation of electricity market in Finland as a part of Nordic market

The Finnish electricity market is a part of the physically interconnected Nordic market which also includes Denmark, Norway and Sweden. All countries are nowadays deregulated in slightly different ways, and the central co-ordination of power generation is replaced with the market based power exchange NordPool. In Finland the deregulation was performed step by step, so that first the customers above 500 kW were allowed to change their supplier in November 1995. From January 1997 all customers were free to select their suppliers provided that they had a remotely-read hourly meter. Since November 1, 1998 all small customers (below 3 × 63 A, about 45 kW) have been able to change their supplier without any extra costs. As a result of competition most of the larger customers have changed their suppliers or negotiated new contracts with their existing supplier. Of the 2.2 million small customers, only about 3% have changed supplier, but the electricity prices for all customers have decreased.

Exogenous hormones

The well‐described influence of several aspects of reproductive life on the risk for cancer in the reproductive organs has raised concern regarding the safety of exogenous hormones, particularly since sex hormones have become one of the most widely used drugs among women in the western world. The major areas of application include oral contraception and hormone replacement therapy in women with menopausal symptoms. Since the introduction of oral contraceptives onto the Nordic market in the late 1960s, the number of users has grown steadily, to reach proportions of long‐term users among women aged 15–45 years in 1985 ranging between 6% (Norway) and 19% (Sweden) and proportions of current users in 1994 ranging between 20% (Norway) and 28% (Sweden). Such data on the current and long‐term use of oral contraceptives by the female populations, linked with relative estimates of adverse (cancers of the breast and uterine cervix) and beneficial effects (protection against cancers of the ovary and endometrium), indicate that 95 cases of breast cancer and 40 of cervical cancer will be caused by oral contraceptives annually around 2000 in the Nordic countries, which corresponds to 0.6% of all breast cancers and approximately 3% of all cervical cancers. The beneficial effects include an annual prevention around the year 2000 of approximately 350 cases of ovarian cancer and a similar number of endometrial cancer, for a total about 700 cancer cases annually. The prevalence of long‐term users (≥5 years) of hormone replacement therapy among Nordic women aged 40–69 in 1995 was estimated to be 10–11%, which on the basis of an associated relative risk for breast cancer ranging from 1.2–1.5 suggests than an annual total of 260 cases of breast cancer could be avoided in the Nordic countries around the year 2000 if hormone replacement therapy were eliminated. This corresponds to 1.8% of all notified cases of breast cancer among women in these countries.

97/03853 Domestic merger policy in an international oligopoly: the Nordic market for electricity

97/03853 Domestic merger policy in an international oligopoly: the Nordic market for electricity

Domestic merger policy in an international oligopoly: The Nordic market for electricity

Many domestic markets are becoming integrated in international markets. Is this an argument for permitting mergers between domestic producers? It is shown that a merger with no cost-saving effects will always be detrimental to domestic welfare if the country is an importer of the good in question, and may increase welfare if the country is an exporter and the price-cost margin is sufficiently low initially. We specify a general condition for a merger to improve welfare, and apply the condition on the Nordic market for electricity. Numerical calculations suggest that in this particular market the Norwegian competition authority should ban domestic mergers with no cost savings.

The Nordic Countries in International High-Technology Markets: Pharmaceuticals

The aim of this article is to investigate the possible competitive advantages common to enterprises in more than one of the Nordic countries, and at least to some extent to explain them from specific societal or economic aspects common to the Nordic welfare states. Pharmaceutical production and export is chosen as the case study, as this is one example of an international competitive success common to most of the Nordic countries. To some extent the source of competitive advantage is the sophisticated demand for pharmaceuticals, represented by the advanced Nordic health care systems. The so-called Scandinavian welfare model may in this context be considered the source of competitive advantage generally, and the Nordic market as an advanced home market for the development of what are called welfare technologies and products.

The Nordic Countries in International High-Technology Markets: Pharmaceuticals

The aim of this article is to investigate the possible competitive advantages common to enterprises in more than one of the Nordic countries, and at least to some extent to explain them from specific societal or economic aspects common to the Nordic welfare states. Pharmaceutical production and export is chosen as the case study, as this is one example of an international competitive success common to most of the Nordic countries. To some extent the source of competitive advantage is the sophisticated demand for pharmaceuticals, represented by the advanced Nordic health care systems. The so-called Scandinavian welfare model may in this context be considered the source of competitive advantage generally, and the Nordic market as an advanced home market for the development of what are called welfare technologies and products.